Chrysler LLC:

President Barack Obama delivered an address to the nation this morning at 11AM where he summarized the results of review of General Motors and Chrysler by The Presidential Task Force on the Auto Industry. The conclusion of the report was that neither of the plans presented to the Task Force by GM and Chrysler are viable.Wagoner Gone – Replaced by Henderson: Immediately, General Motors’ Chairman Rick Wagoner was let go to be replaced by Fritz Henderson – a very capable and experienced senior executive. Clearly, the Task Force determined that the GM plan did not go far enough. GM now has another sixty days to rework the plan and come back with a viable approach. If they do not, the government can move the Corp into bankruptcy to get its house in order.
Our question is “What will GM’s brand and vehicle line profile look like on June 1?”Chrysler and Fiat Agree to the Framework of a Tie-Up: Minutes after Obama’s speech, Chrysler announced the it had reached developed a framework for a tie-up with Fiat with the blessing of the Treasury Department. Fiat receives a third share of Chrysler for technology sharing allowing Chrysler to launch competitive new products based on Fiat powertrains and platforms. This is needed to keep Chrysler competitive. Chrysler CEO Bob Nardelli keeps his job because he has been at the helm for a relatively short time (since August 2007) compared with Wagoner’s eight years at the helm.Government to Guarantee Warranties (Warrantees): Obama stated that beginning today the warranties offered by GM and Chrysler are stronger than they have ever been because they would be guaranteed by the government. Also, adopting a spelling not seen for decades, the government refers to these plans as “warrantees”. This support by the government is to create confidence in purchasing a new General Motors or Chrysler vehicle today.Other Actions – Tax Credits, Scrappage Plans, Etc: Obama also mentioned the sales tax credit for purchasing a new vehicle that has been approved by Congress. Pending are plans for incentives to scrap older, gross polluters.Further Question: Ford: Ford Motor Company has not taken part in government loan guarantees having planned financially for tough years back in 2006. While Ford is struggling like GM and Chrysler it does not seem to be hurt as much in the market as they are. Market share is not down as much.
How will Ford be impacted by the statements of the President, The Presidential Task Force on the Auto Industry, and the restructuring forced on GM and Chrysler by the government? Will Ford thrive or continue to struggle?Another Question: Financial Company CEOs: Rick Wagoner fell on the sword for General Motors performance during his tenure but you can argue that the performance of the financial community has been much worse and much more damaging to the economy. Where can we see the heads of the banks, investment banks, and insurance company CEOs rolling down Main Street?

Are we nearing the end of Chrysler? Or the beginning of a new blended family? Or just another day at the rumor mill?
Late on Friday, the first stories began appearing about GM and Chrysler in possible merger talks. And at least in Detroit, dominated the weekend news cycle. GM’s stock went up this morning, but given that the Dow was up 5.6% and GM went up only about 3%, the stock bump might have happened without merger talk. GM closed on Friday at $4.89, a number some say is actually less than the company would be worth in capital assets alone.

All of this merger talk, whether these deals are realistic or not, does nothing good for public perception. The economy is weak, last week’s events on the stock market don’t reassure anyone, and talking about GM and Chrysler perhaps needing to merge to survive only further erodes confidence in American business. While GM and Chrysler LLC, as well as any other maker in trouble right now, needs to consider even unthinkable options and test our common assumptions as they get out of this trouble, this merger does not inspire hope.

A stream of consciousness look at the auto industry in 2007. Whew, what a year it was!!!!!!!Not the Trauma We Expected, but 2007 was Tough
We began the 2007 thinking the year was going to tank into the mid-15,000,000 unit range. That didn’t happen and the industry struggled to just over 16,000,000 units. This reasonably good year was in the face of negative media coverage, a severe housing downturn, a subprime mortgage crisis, soaring gasoline prices, etc.
Saying 2007 at just over 16 million units was a good year will be criticized as nuts, but we have been conditioned since 2000 to think that 17 million is good. It wasn’t too many years ago that 15 million was good. So, 16 million ain’t too bad. Just not what we have become accustomed to. And, by accustomed to, I mean we have plant capacity for many more units. We have dealers in place to sell many more units. We have built our business models and breakeven points on 17 million units and not 16 million.
We began the year with turmoil. Ford was in turmoil and embarking on an aggressive restructuring program with a new CEO at the helm. There were rumors of bankruptcy hovering over Detroit. DaimlerChrysler AG announced that it would off-load its American Chrysler Group and rely on upscale Mercedes-Benz cars, commercial trucks and, of course, Maybach and smart.

Ford Struggles Through 2007
By year end, Ford is still with us and there are some bright spots in its lineup – Fusion, Edge, MKX, MKZ. The Five Hundred, Montego and Freestyle were freshened, got new engines and renamed Taurus, Sable, Taurus X. Well, the upgrades took, but sales did not and Taurus, et.al have languished on dealer lots. I did see a ton of them on Kauai along with a very high number of Dodge Calibers. So, we know that retail sales for the Ford large cars and Crossover are not doing too well. Ford has retained top spot in big truck sales with F-Series remaining the sales leader even with Silverado and Tundra coming on strong and the Dodge Ram pickup offered at fire sale prices. Ford unloaded Aston Martin and spent the year doing due diligence on off-loading Jaguar and Land Rover (probably to India’s Tata Motors). Ford will keep Volvo, however.
To help Ford with sales and marketing, Ford lured Jim Farley to the Company. Formerly Group Vice President of Toyota’s Lexus Division, Farley was a rising star in the Toyota ranks. A friend of the Ford family, Farley appears positioned to challenge Ford’s other young star – Mark Fields – as the heir apparent to Alan Mulally in four or five years.

Now, It’s Chrysler LLC
DaimlerChrysler gave Chrysler Group to Cerberus Capital Management retaining a 19.9% stake. Cerberus promptly named Bob Nardelli – formerly hard charging CEO of Home Depot and General Electric – as CEO of Chrysler LLC. Nardelli’s lack of specific auto industry experience was offset by Cerberus adding highly respected Toyota executive Jim Press as co-COO. Press is working his way through Chrysler’s activities using the revered Toyota Five Whys approach (a question asking method used to explore the cause/effect relationships underlying a particular problem. Ultimately, the goal of applying the 5 Whys method is to determine a root cause of a defect or problem). Five Whys, understandably, has Chrysler vets on edge. They now have to justify everything. Nardelli, Press and Tom LaSorda are facing soft sales, high inventories, sub-par interiors in many cars and an image gap. With $10 billion in loans, Chrysler LLC has some time to prove itself or position itself for a takeover or a parceling out of components (like Jeep, Dodge Truck, Minivans, etc). Oh, yeah, DaimlerChrysler became Daimler AG in October.

General Motors Has Turned the Corner
General Motors appears to have turned the corner. GM has kept its head down during 2007 staying out of the feeding frenzy the media has directed at Ford and Chrysler. Not that there aren’t numerous stories written about GM, it’s just that there hasn’t been the bad news to whet the appetite of journalists.
GM’s products are improving now that the early efforts of Bob Lutz are being seen. While cars like the Saturn Aura and trucks like the Lambda Crossover SUVs and GMT900s have set the tone, Lutz’ real impact has been seen on the 2008 Cadillac CTS and 2008 Chevrolet Malibu. Both of these cars will serve to cement GM’s car lineup for years to come.

Chrysler LLC today announced a wave of manufacturing actions to reduce capacity and headcount. They also announced that four products would be cancelled from the Chrysler lineup and that two new products and two hybrids would be introduced.
Perhaps the most significant drop is of the Dodge Magnum. This distinctively styled wagon has always been a favorite of mine, but as a “wagon” it has not resonated well with the buying public. When the Charger 4-door sedan was added to the Dodge lineup, Magnum was relegated to the list of forgotten models at the Dodge store. There is probably not a cooler looking vehicle on the road when it is well-dressed by a tuner than the Dodge Magnum.

Three More Products Announced for Cancellation – Two Added
Chrysler also announced that it will kill the Chrysler PT Cruiser convertible, the Chrysler Pacifica and the Chrysler Crossfire. All are low volume products that have not captured the attention of the market. While killing four products, Chrysler adds the Dodge Journey Crossover SUV and Dodge Challenger muscle car to the Dodge lineup. Seems like a very fair trade.
Next on the block we’d like to see the demise of the Jeep Commander and Jeep Compass – both products Jeep does not need. While Commander has Jeep DNA, Compass does not and Jeep should keep pure to its Trail-Rated DNA. Commander should be on the block because it is UGLY. Aspen, Dakota and Durango could also be up for consideration to drop.More Headcount Reductions
In addition to cancelling products, Chrysler will eliminate shifts at several plants to bring capacity in line with demand (market shrinkage from 17.2 million units to around 16.2 million units). This will reduce hourly headcount by another 8,500 to 10,000 workers. Salaried headcount is to be reduced by another 1,000 staffers. These reductions are in addition to a 13,000 job reduction previously announced by Chrysler.
Read Chrysler’s November 1 Press Release below the fold